Whilst Brexit developments continue to dominate the markets focus, all eyes are now on the EU Council meeting scheduled for 17th-18th October where UK Prime Minister Boris Johnson has signalled his intention to attempt to reopen negotiations on the UK Brexit agreement. With the spotlight on the final 64 days before the UK are due to officially leave the EU, the negative economic rumblings from the Bloc appear to be making little impact on the value of the single currency.
Economic data has been light this week. However, worth a mention are the continuing decline of German 10 year Bonds which fell to minus 0.7% from a previous -0.41%. Negative bond yields are often read as a signal of an economy destined for faint, if any, growth at all. If investors are willing to pay to park their money for decade, that’s a sign that they don’t expect better returns elsewhere.
With mounting concerns that Germany will officially head in to recession, the Single Bloc’s largest economy continues to show signs of economic strain. The head of IFO, (A Munich based research group) Prof Clemens Fuest, forecasted that Germany’s GDP would shrink this quarter, having already contracted by 0.1% in the previous three months. That would put the economy into a recession for the first time since 2013. German Unemployment and Retail Sales figures released over the next two days are worth watching.
In rhetoric that echoes the US Federal Reserve the ECB (European Central Bank) Vice President Luis de Guindos has highlighted that the European Central Bank must base its policy decisions on economic data rather than market expectation.
"Our monetary policy is data-dependent, not market- dependent: indications from market expectations cannot replace our policy judgment,” de Guindos told a conference in Manchester.
According to Reuters the ECB has all but promised a stimulus package for it’s September 12th policy meeting and there is mounting speculation of several rate cuts for the coming year and a fresh round of quantitative easing.
Historically any central bank action to prop up a flagging economy has had a negative impact on the domestic currency as the demand for that currency reduces during times of economic strain and/or uncertainty. The current political landscape however, is far from the norm and this only highlights that we can not predict how exchange rates may react to any announcements from the mid-September meeting. You may wish to speak to your Account Manager at Foreign Currency Direct if you have an upcoming currency transfer.
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